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Gender Pay Gap Reporting: Final Regulations Published

The revised gender pay gap reporting regulations were finally published on 6 December 2016 (see here).

The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 will come into force on 6 April 2017. The revised regulations are substantially different to the draft regulations published alongside the Government Equalities Office’s consultation paper in February 2016 (see here). A number of the points made in response to the consultation have been taken on board in the revised regulations

The key points to note are as follows:

The reporting obligations apply to employers with 250 or more employees on 5 April in any given year. The 250 employees threshold applies to each group company on an individual basis. The obligations do not apply to public sector employers – public sector gender pay gap reporting regulations will be published separately.

The reporting obligations relate to ‘relevant employees’. These are defined as persons ‘employed by the relevant employer on the snapshot date’. One of the concerns raised in relation to the draft regulations was that they potentially required the inclusion of data relating to former employees if those employees were employed within the 12 month period ending on the snapshot date. The revised regulations have addressed this issue by providing that a person must be employed on the snapshot date in order to be a ‘relevant employee’. Less helpfully, the new ‘relevant employee’ definition extends to employees who are based overseas but are employed by the group company which is required to report. This differs from the position in the draft regulations where the reporting obligations were limited to any employee who ‘ordinarily works in Great Britain’.

The Explanatory Notes make clear that employment for the purposes of the ‘relevant employee’ definition has the same meaning as in section 83 of the Equality Act 2010. This means that any person employed under a contract of employment, contract of apprenticeship, or a contract personally to do work will be caught. Casual workers, contractors and zero hours workers who are directly engaged by the employer will therefore fall within the scope of the regulations and will count towards the 250 employees threshold. There is no obligation to disclose data relating to a person who is employed under a contract personally to do work, however, if the employer does not have, and it is not reasonably practicable for the employer to obtain, the data. It may be possible to argue that it is not reasonably practicable to obtain data in respect of employees not on payroll. Partners and LLP members are specifically excluded from the definition of ‘relevant employee’.

Pay is now split into (i) ‘ordinary pay’ and (ii) ‘bonus pay’. Both are to be calculated before deductions made at source. There is an obligation to report:

the difference between the mean hourly rate of pay of male and female employees (hourly rate being an aggregate of ordinary and bonus pay);

the difference between the median hourly rate of pay of male and female employees (again, an aggregate of ordinary and bonus pay);

the difference between the mean bonus pay paid to male and female employees in the 12 month period prior to the snapshot date;

the difference between the median bonus pay paid to male and female employees in the 12 month period prior to the snapshot date – this is a new obligation;

the proportions of male and female relevant employees who received bonus pay in the 12 month period prior to the snapshot date;

the proportions of male and female employees in each of the quartile pay bands - this is a new obligation.

Ordinary pay is defined as:

basic pay;

allowances;

piecework pay;

pay for leave; and

shift premium pay

Ordinary pay specifically excludes overtime, redundancy/severance pay, pay in lieu of leave and benefits in kind. The list is now exhaustive, which is helpful – the list in the draft regulations was non-exhaustive.

Bonus pay now means any remuneration that:

is in the form of money, vouchers, securities, securities options, or interests in securities,

Bonus pay specifically excludes ordinary pay, overtime and redundancy/ severance pay. The bonus pay list is also now exhaustive. The wording of the definition is not entirely satisfactory, however – we assume that it was intended that both limbs of the definition must be satisfied in order to qualify as bonus pay but the drafting is not clear that this is the case – an “and” seems to be missing. If only one limb has to be satisfied then the definition is very broad because anything which is in the form of money which is not ordinary pay, overtime or redundancy/severance pay would be considered bonus pay.

The concept of disclosing bonus payments ‘earned and received’ which appeared in the draft regulations is now thankfully gone. The regulations now speak only of ‘bonus pay paid’. Where ‘bonus pay’ remuneration is awarded in the form of securities, securities options or interests in securities, the regulations now provide that the disclosure amount will be calculated and treated as having been paid on the date on which the applicable income tax charge arises (specifically the date upon which the award gives rises to taxable earnings or taxable specific income within the meanings set out in section 10(2) and 10(3) of ITEPA 2003 respectively) – for example, the date of exercise of a non-tax favoured share option. If the award falls to be taxed within the capital gains tax regime (for example, an SAYE option) the value of the award will not be taken into account as bonus pay.

There is no separate reporting of the difference in ordinary pay as ‘bonus pay’ is still included in the calculation of the hourly rate of pay. In the draft regulations, the inclusion of bonus pay in the mean pay disclosure meant that if an annual bonus was paid within the pay period this would skew the reported figures. This issue has been addressed by the revised regulations which provide that if any bonus payment included in the hourly rate of pay calculation relates to a period longer than the relevant pay period, the bonus payment should be pro-rated down so that it reflects the relevant pay period only.

The pay period is either the period in respect of which the employer pays basic salary or, if it does not pay basic salary, the period in respect of which the employer most frequently pays the employee one of the other elements of ordinary pay. The ‘relevant pay period’ is the pay period within which the snapshot date falls.

The introduction of the ‘hourly rate of pay’ concept means that full-time and part-time employees can now properly be compared – this was an issue with the draft regulations. Regulation 6 sets out the six step process an employer should follow in order to calculate the hourly rate of pay.

There is no obligation to report the mean and median hourly rate of pay differences in respect of employees who are being paid at a reduced rate or not at all during the relevant pay period - this obligation only relates to ‘full-pay relevant employees’. This means that employees on maternity leave, sick leave, or other leave who are not being paid in full during the relevant pay period will be excluded from the hourly rate of pay difference disclosure, and therefore will not skew the results. This helpful change has not been tracked through to the mean and median bonus pay difference disclosure, however – if an employee on maternity leave is paid a bonus during the relevant period which has been reduced to reflect time spent on maternity leave, this bonus payment will need to be included and could affect the meaningfulness of the disclosure.

The snapshot date is 5 April each year, starting on 5 April 2017 – in the draft regulations it was 30 April. The information must be published within the 12 period beginning on the snapshot date each year.

Non-statutory guidance to help employers meet the new requirements will be published after Parliament has approved the regulations.

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